AI is now inextricably linked to broad based investing because the build out for the technology has caused some big companies to grow even bigger. So if you own any index-based fund, you automatically have some AI exposure. It’s not necessarily bad; many of these companies are some of the best run businesses in the world and they’re investing in AI because they view it as opportunity for growth.
The AI surge has been steep and massive. No question, it has driven some stocks to sky high levels. One question we’ve heard asked is “Is this the same as the internet bubble?”. The simple answer is No, and the main difference is that most of the companies leading the AI bull market are underwritten with cash flow earnings beyond the AI itself. The internet bubble was speculation on companies with no earnings and few paths to earnings. But while most investment strategists do not consider it a bubble, with any group of stocks that experience swift appreciation of significant magnitude, it’s reasonable to expect volatility. We’ve seen pockets of that this year.
At Argent Bridge, monitoring our models and portfolios for skewed exposure, such as an over-exposure to AI, has a few layers.
- Our teammates conducting investment research look at the exposures within each fund we use and analyze the degree of overlap each strategy has with the others. Our software capabilities, direct fund research, and sometimes even AI itself allow us to drill down and uncover hidden correlations.
- Our Investment Committee considers this data when deciding any strategic changes to our models or new portfolio strategies.
- Our weekly Advisory discussion groups examine portfolios for staying aligned with asset allocation targets.
It’s impossible to foresee all the investment risks that a swiftly emerging technology like AI will include. Everyone of one of the portfolios we advise on is diversified across several asset classes. Insulating your portfolio from market risk starts with your overall allocation to bonds. And from there identifying and managing over-weights that may bring unwelcome risk is baked into our process.
Securities offered through Osaic Wealth, Inc. Member FINRA/SIPC. Advisory Services offered through Osaic Advisory Services, LLC (Osaic Advisory). Osaic Wealth and Osaic Advisory are separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth and Osaic Advisory.
